COSTS AND CHARGES CONTENTS

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1 COSTS AND CHARGES CONTENTS What s this document for? 01 Costs for spread bets and CFD trades 02 Commodities 02 Forex 03 Shares 03 Indices 04 Equity options 04 Appendix A: Formula sheet 06 Currency conversion fee 06 Commodities 06 Forex 06 Shares and indices 06 Appendix B How we price our undated commodity markets 06 What this means for overnight funding 06 Appendix C What is tom-next? 06 WHAT S THIS DOCUMENT FOR? This document will show you the costs and charges associated with our products (spread betting and CFDs) and markets. You ll find formulae for how we calculate our charges, both throughout the document and collected in Appendix A, as well as worked examples. You can apply these to your own trades to estimate the cumulative effect of our costs and charges on your returns. It s important to remember that your total costs will increase proportionate to your trading sizes and volumes. BCF Page 1 of 6

2 COMMODITIES commodity markets, you ll pay: 1. Our spread (the difference between the bid and ask prices; includes the market spread, which can vary dependant on market conditions) 2. An overnight funding adjustment (if you hold your position past 10pm The overnight funding adjustment The formula for calculating the overnight funding adjustment on commodities is broken down into two parts; the daily movement along the s curve (basis), and the. We call this an adjustment, not an outright charge, because the basis may be a credit or a debit. This will depend on the direction of your trade and the slope of the s curve. Please read Appendix B: How we price our undated commodity markets for more information about the basis, and how it will affect your position. 1. Formula for commodities overnight funding adjustment = EITHER nights held x (trade size x (basis + )), for long trades on upward-sloping s curves, or short trades on downward-sloping s curves; trades in which you will pay the basis, OR nights held x (trade size x (basis )), for short trades on upward-sloping s curves, or long trades on downwardsloping s curves; trades in which you will receive the basis. 2. Formula for the basis = (P3 P2) / (T2 T1) P2 = price of front P3 = price of next T1 = expiry date of the previous front T2 = expiry date of the front 3. Formula for the = Undated mid price x 2.5% / 365. The undated mid price is a snapshot of the mid price of the cash CFD or DFB on the relevant date. Commodities spread bet example Imagine you are long 10 per point on US Oil, with a spread of 2.8 points. The cost of your trade, if you don t hold it overnight, is the spread. 10 x 2.8 = 28. Let s look at what the trade would cost if you held it for one night, based on the following: T1 and T2 difference = 31 days P2 = 4700 P3 = 4770 Undated mid price = 4730 Overnight adjustment = 10 x ((( ) / 31) + (4730 x 2.5% / 365)) Trade size = 10 x ( ) = Overnight adjustment = P3 - price of next IG charge Basis P2 - price of front T2 T1 Undated mid price In this example, the for holding the position overnight is The basis adjustment will appear in the running profit or loss on the position as either a credit or debit, depending on the direction of your trade and the slope of the s curve. Based on the above example held for one night, the total cost would be as follows: Spread = 28 Overnight funding charge (within adjustment) = 3.24 Total cost = For any position opened before 10pm Friday that is still open after 10pm Friday, the basis adjustment will be made for three days as opposed to one. This three-day adjustment is applied on the Sunday night or Monday morning. Commodities CFD trade example Imagine that you re selling three standard contracts of Coffee New York (Arabica). The contract size is $3.75, and the spread is 20 points. Let s look at what the trade would cost if you held it for two nights, based on the following: T1 and T2 difference = 90 days P2 = P3 = Undated mid price Overnight adjustment = = $11.25 x ((( ) / 90) ( x 2.5% / 360)) Trade size = $11.25 x ( ) = $44.37 $9.90 = $34.47 (received) 2 x $34.47 Nights held = $68.94 Price of next Basis Price of front T2 - T1 rate on this day is with our admin fee, we get a conversion rate of overnight adjustment = $68.94/ = (received) Based on the above example held for two nights, the total cost would be as follows: Spread = 20 x $3.75 x 3 = $225 spread = $225/ = Overnight funding charge = 2 x 9.76 (within adjustment) = $19.52 = $19.80/ overnight funding charge = Total cost Page 2 of 6

3 (CONTINUED) FOREX forex markets, you ll pay: 1. Our spread (the difference between the bid and ask prices; includes the market spread, which can vary dependant on market conditions) 2. An overnight funding charge (if you hold your position past 10pm Forex settles on a T+2 basis, so if you hold a position overnight on a Wednesday, you ll be charged for three days carry. 1. Formula for forex overnight funding charge = nights held x (tomnext rate including annual admin fee) x trade size 2. Formula for annual admin fee = EITHER cash mid price x 0.8% for mini contracts and spread bets, OR cash mid price x 0.3% for CFD standard contracts. We take our tom-next rate from the underlying market. For more information on how tom-next is calculated, please see Appendix C: What is tom-next? Forex spread bet example Imagine that you re short 5 per point on EUR/USD, with a spread of 0.75, and you hold the position for two nights. Underlying tom-next = 0.56/-0.58 Cash mid price = Admin fee = x 0.8% / 360 = 0.26 Tom-next with = 0.30 / admin fee We use this positive number in our calculation, as this is a short position Spread = 0.75 x 5 = 3.75 Overnight funding Total cost = 2 x 0.3 x 5 = 3.00 (received) ( 2.60 of which is the IG admin fee: 2 x 0.26 x 5 = 2.60) = 0.75 (spread minus overnight funding received) Forex CFD trade example Imagine that you re buying 5 contracts of GBP/USD, with a spread of 0.9, held for one night on Wednesday. Forex trades are settled on a T+2 basis, so if you hold a position overnight on a Wednesday, you pay to hold your position for three nights rather than one. However, you ll only be charged our admin fee once. Underlying tom-next = 0.27/-0.3 Cash mid price = Tom-next with admin fee Days held Trade size Admin fee = x 0.3% / 360 = 0.11 Tom-next with = (3 x 0.27) 0.11/ (3 x -0.3) 0.11 admin fee = 0.7/-1.01 We use this negative number in our calculation, as this is a long position rate on this day is with our admin fee, we get a conversion rate of Spread = 0.9 x $50 = $45 spread = $45/ = Overnight funding = x $50 = $50.50 = / overnight funding = ( 4.19 of which is the IG admin fee: 0.11 x $50 = $5.50, which converted = $5.50/ = 4.19) Total cost = SHARES share markets, you ll pay: 1. Our spread (the difference between the bid and ask prices) on spread bets, or our commission on CFD trades 2. The market spread, which can vary dependant on market conditions 3. An overnight funding charge (if you hold your position past 10pm 4. Borrow (if shorting a share market) 1. Overnight funding charge = nights held x (market closing price x trade size x (2.5% +/- LIBOR)) / 365 If you re long, you pay LIBOR (or the equivalent interbank rate). If you re short, you receive it. Shares spread bet example Imagine that you re long 25 per point on Barclays. You hold your trade for 3 nights, with a closing price of each evening. Current UK LIBOR rate = 0.37% Market spread IG spread = 0.41 Total spread = 0.46 IG spread Market spread Overnight funding = 0.05 points = 0.41 x 25 = = 0.05 x 25 = 1.25 Nights held = 3 x (184.2 x 25 x (2.5%+0.37%)/365 = 1.09 Total cost = Trade size Market closing price LIBOR Page 3 of 6

4 (CONTINUED) Shares CFD trade example Now imagine you re selling 250 Apple share contracts, held for four nights with a price of each evening. Current US LIBOR rate = 1.24%. Annual borrow charge = 0.60% Market spread = 0.1 rate on this day is with our admin fee, we get a conversion rate of Market spread = 0.1 x 250 = $25 = 25 / market spread = IG commission = $30 ($15 to open and $15 to close) IG = 30/ commission = Overnight funding = 4 x 250 x x (2.5%-1.24%) / 360 = $5.85 = 5.85 / overnight funding = 4.41 Borrow = 4 x 250 x x 0.6%/360 = $2.78 borrow = 2.78 / = 2.10 Total cost = = market spread + = IG commission + overnight funding + borrow INDICES index markets, you ll pay: 1. Our spread (the difference between the bid and ask prices; includes the market spread, which can vary dependant on market conditions) 2. An overnight funding charge (if you hold your position past 10pm 1. Overnight funding charge = Nights held x (market closing price x trade size x (admin fee +/- LIBOR)) / 365 Our admin fee is 2.5% for spread bets and standard CFD contracts, and 3% for minis. If you re long, you pay LIBOR (or the equivalent interbank rate). If you re short, you receive it. Indices spread bet example Imagine that you re buying 10 per point of our FTSE 100 DFB. You hold your trade for two nights, with a closing price of 7488 on both evenings. Current UK LIBOR rate = 0.37%. You open and close your position during market hours, so the total spread charged is one point. Spread = 10 x 1 = 10 Overnight funding = 2 x ( 10 x 7488 x (2.5% %)/365) = Total cost = Indices CFD trade example Imagine that you re selling 20 mini contracts of Germany 30 cash. You hold your trade for seven nights (including the weekend), with a price of at 10:00pm on all evenings. Current EURIBOR rate = 0.372%. You open and close your position during market hours, so the total spread charged is one point. Spread = 20 x 1 = 20 Since this is a euro trade, we also need to convert it into sterling. We rate on this day is with our admin fee, we get a conversion rate of spread = 20 x = Overnight funding = 7 x 20 x x (3% - (-0.372%)/360 = = x overnight funding = Overall cost = EQUITY OPTIONS equity options, you ll pay: 1. Our spread on spread bets/our commission on CFD trades 2. The market spread, which can vary dependant on market conditions The spread is the difference between the bid and ask prices. Equity options spread bet example Imagine you re selling 20 per point of the Marks and Spencer Group 300 PUT expiry JAN, and hold until expiry. IG spread = 1 point Market spread = 3.75 points IG spread = 20 x 1 = 20 Market spread = 20 x 3.75 = 75 Total cost = 95 Page 4 of 6

5 (CONTINUED) Equity options CFD trade example Imagine you re buying 15 lots of the SPY CALL expiry DEC, and hold for 2 weeks. One lot = 100 shares for US equity options. IG commission = $5 per lot, charged to open and close Market spread = 3 points IG commission = 2 x 15 x $5 = $150 rate on this day is with our admin fee, we get a conversion rate of IG commission = $150 / = Market spread = $0.03 x 15 x 100 = $45 market spread = $45/ = Total cost = 147 Page 5 of 6

6 APPENDIX A: FORMULA SHEET These are the formulae you ll find used throughout this document, displayed here for quick reference. APPENDIX B HOW WE PRICE OUR UNDATED COMMODITY MARKETS CURRENCY CONVERSION FEE 0.3% x conversion rate COMMODITIES Overnight funding adjustment EITHER Trade size x (basis + ) for long trades on upward-sloping s curves, or short trades on downward-sloping s curves; trades in which you will pay the basis. OR Trade size x (basis - ) for short trades on upward-sloping s curves, or long trades on downward-sloping s curves; trades in which you will receive the basis. Basis (P3 P2) / (T2 T1) P2 = price of front P3 = price of next T1 = expiry date of the previous front T2 = expiry date of the front Undated mid price x 2.5% / 365 The undated mid price is a snapshot of the mid price of the cash CFD or DFB on the relevant date. FOREX Overnight funding charge (tom-next rate including annual admin fee) x trade size Annual admin fee EITHER Cash mid price x 0.8% for mini contracts and spread bets. OR Cash mid price x 0.3% for CFD standard contracts. SHARES AND INDICES Overnight funding charge Market closing price x trade size x (admin fee +/- LIBOR) 365 Our admin fee is 2.5% for spread bets and standard CFD contracts, and 3% for minis. If your position is long, you pay LIBOR (or the equivalent interbank rate). If you re short, you receive it. To price our undated commodity markets, we use two s contracts on the underlying commodity. For each market we look at the contracts that have sufficient liquidity, then use the two with the nearest expiry dates. The one that has the closest expiry date is called the front month contract, and is labelled A in our diagram. The one with the secondnearest expiry date is called the back month contract and is labelled B. As soon as the previous contract expires, the price we offer is equal to the price of A. When A expires, B becomes the front month contract, and our price is equal to the price of B. In between these two expiry points, our price gradually moves from the price of A towards the price of B. Depending on the commodity, the price of B can be higher or lower than the price of A. What this means for overnight funding Our undated price will predictably and regularly move along this curve with the passage of time, rather than in reaction to actual stimuli. As a result, you re not eligible to make a profit or loss on the movement. Each overnight funding adjustment for these markets reflects this, crediting or debiting one day s movement along the forward curve from the price of A towards the price of B. If you have a long position on a rising market (more accurately, a market with an upward-sloping curve), your account will be debited by the amount the market has risen (or rather, progressed along the curve) that day. Conversely, you won t lose anything if you have a short trade on a market with an upward-sloping curve we ll credit your account the necessary amount. APPENDIX C WHAT IS TOM-NEXT? Tom-next is short for tomorrow-next day, the means by which forex speculators avoid taking physical delivery of currency and are able to keep forex positions open overnight. Like commodities, forex trades would if left unchecked normally result in the trader taking delivery of the asset they have traded. In forex the expected delivery day is two days after any transaction. In order to keep a trade open overnight, forex providers will swap any overnight positions for an equivalent contract that starts the next day. The price difference between the two contracts is called the tom-next adjustment. Tom-next is calculated by adjusting the closing level of the open position with the interest rate of the currencies involved. If you are buying a currency with a higher interest rate then you receive an interest payment, if you are buying a currency with a lower interest rate you have to pay interest. Page 6 of 6

IG COSTS AND CHARGES CONTENTS

IG COSTS AND CHARGES CONTENTS What s this document for? 01 Costs for spread bets and CFD trades 02 Commodities 02 Forex 03 Shares 03 Indices 04 Equity options 04 Share dealing charges 05 IG Smart Portfolio